I'd wager it's because it wasn't nice, not because it wasn't expensive. Low end phones aren't nice to use, and people who buy Apple buy it for the polished user experience.
If they sold their flagship phone at entry-level prices then I'd expect it to do as you suggest, selling like hotcakes but devaluing the brand. Even then it wouldn't do half as much damage to the iPhone brand as a $100 Rolex would do to the Rolex brand, because iPhones have a lot of utility that makes them worth having whereas a watch is, these days, almost entirely a vanity item.
If they sold their flagship phone at entry-level prices then I'd expect it to do as you suggest, selling like hotcakes but devaluing the brand. Even then it wouldn't do half as much damage to the iPhone brand as a $100 Rolex would do to the Rolex brand, because iPhones have a lot of utility that makes them worth having whereas a watch is, these days, almost entirely a vanity item.